March 23rd was Tax Day 2021 in the UK. This was a new event, held a few weeks after the Budget, where the Government will outline its plans. It is not the same as the Budget, which we covered in our recent blog.
When it comes to the purpose of Tax Day, this is mainly for longer term aspirations, newly announced reviews, the results of past reviews, and things which give us an idea of the “direction of travel”. Some changes which might come into force relatively quickly can be covered, but it is more about the government’s long-term plans.
We look at some of the key announcements by the government and what could they mean for you.
Key Tax Day 2021 announcements
One announcement on Tax Day 2021 was the plan to tax the self-employed more like employees.
The UK needs cash and The PAYE system brings in cash – every month, on the nail. PAYE was introduced in 1944 to help pay for the crippling costs of World War II. It proved to be such a good idea that it never went away!
The Uk government would now like to introduce something similar for the self-employed.
It’s clear that the aim is to make them pay monthly as well. The government says that if you ask the self-employed whether they would like to pay tax more regularly, in bite-sized chunks, it gets a positive response.
Potential issues with the self-employed tax announcement
That may well be true, but we don’t believe it is the main issue.
The main issue, as we see it, is that to get to the point where all self-employed people are paying monthly in real time, at some stage they will have to pay two years of tax in one year.
The stated aim is to introduce a new system in 2024. These ambitious tax deadlines, especially ones linked to any new IT requirement, usually get put back to a later date of course.
However, the fact that we need the cash as a nation might mean it gets introduced on time. And – whilst there will be a general election in 2024 (if not before, if the Fixed Term Parliament Act gets repealed) – it’s hard to see an extra year of tax receipts in the bank, a huge boost for the nation, being rejected by any government of any colour.
2024 is not that far away. One would hope that the catch-up payments to get to the point of everyone paying monthly would be spread over a couple of years. That would make a lot of sense. But will that happen?
Advice for preparing for tax changes
The best advice we can give you at the moment is to look at two things.
Firstly, if you are a Sidaways client already, you will likely be using Xero software. If you are a client and not using it yet, please ask us about it! We believe this software is the key to running a smooth business and being able to effortlessly produce 12 monthly reports for HMRC (which will no doubt be needed for the new system to work).
Secondly, you need to examine your business model to see if you could make any changes to it. The time to do that is now. Clearly this will not apply to all businesses, but for ones that have regular clients, should you change to billing your clients on a monthly basis, for example? When was the last time you reviewed how you operate? Please come and talk to us if you want to use us as a sounding board.
In relation to the above, when was the last time you saw your business figures on a cash flow forecast? Might you be interested in a piece of software that could pick your historical figures straight from Xero and use them to project forwards? And which would show you the cash flow effects of changes in your business model? Again, come and talk to us if that might be of interest.
Following the announcements on Tax Day 2021, this very much feels like an obvious moment to review your business and how it is operating to make sure you are in the best shape for what will clearly be major changes to the way business operates and is taxed.
Please get in touch with us if you’d like to discuss this in more detail.